Full Judgment
G. Bikshapathy, J.
1. The petitioner company filed the present company petition under section 439(1)(b) read with sections 434(1)(c) and 433(e) of the Companies Act, 1956.
2. The facts leading to the case are that the petitioner is a private limited company incorporated under the Companies Act. The principal objects of the petitioner company are to carry on the business as manufacturers and processors, dealers, importers, exporters, contractors, etc., and to deal with sale of all sorts of plastic goods, machineries and instruments. The respondent company is also a private limited company having its registered office at Plot No. 2, Phase I, I.D.A., Jeedimetla, Hyderabad. It has been carrying on the business of manufacturing woven sacks and poly propylene and synthetic, etc. The petitioner company has been supplying the plastic goods to the respondent company and has been raising the invoices. During the course of transactions, it has supplied the granules through invoice Nos. 89, 90 and 95 valued at Rs. 2,63,550.10. However, when the bills were raised, the respondent company could not pay the same. Correspondence was exchanged between the petitioner and the respondent companies (company ?) with regard to the settlement of the outstanding bills. It is also the case of the petitioner that they have arranged a loan through State Bank of Hyderabad, Sanathnagar Branch, for a sum of Rs. 2,33,976 to enable the respondent company to purchase plastic granules on high seas basis. However, the said amount was also not paid fully and the balance of Rs. 72,000 remained. Since the respondent has been adopting delay tactics in spite of the acceptance of the liability, a final notice under section 434(1)(c) of the Companies Act was issued to the respondent company calling upon the respondent to clear the outstanding amount failing which the winding up proceedings would be initiated before the High Court. The respondent replied to the said statutory notice on 9.7.1993 confirming the outstanding amount against the invoice Nos. 89, 90 and 95. However, they disputed certain other items. Though the respondent company has been assuring that the amount would be paid, no substantial response was forthcoming and, therefore, a total debt of Rs. 5,08,940 became due, which debt, the respondent company is unable to pay. There is not even a remote possibility of paying such a heavy debt in view of the financial position of the respondent company. Therefore, the petition is filed for winding up under section 439(1)(b) read with section 434(1)(c) and 433(e) of the Companies Act and for appointment of provisional liquidator.
3. A counter affidavit was filed on behalf of the respondent company wherein it is accepted that the petitioner company has been arranging the raw material and that the petitioner had also been providing loan facility. The respondent submitted that the petitioner company did not furnish the consolidated amount. It is submitted that the respondent company is a going concern and has been regularly remitting the bills to its banks and financial institutions and the application is filed by the petitioner only with a view to coerce the respondent company to extract the hypothetical amounts. The sum and substance of the counter is that they are disputing the amounts claimed by the petitioner company and, therefore, the application is not maintainable and the same has to be dismissed.
4. A reply affidavit was also filed by the petitioner company denying the averments made by the respondent company in the counter.
5. The union in M.M. Plasto Packs (P) Ltd. operating in the respondent company filed an application to implead it and the same was ordered by this court. The contention of the union is that the respondent company is running on profitable lines and, if the winding up petition is ordered, the workmen would be put to serious loss and, therefore, they prayed that the application for winding up should be dismissed.
6. Now the point that arises for consideration is whether the respondent company owes debt to the respondent company and, if so, whether it is unable to pay the same as required under Section 433(e) of the Companies Act
7. One witness was examined on behalf of the petitioner company and on behalf of the respondent company, its managing director, Mr. Gulam Musthafa, was examined. Exhs. A-1 to A-19 were marked for the petitioner, while Exhs. B-1 to B-20 were marked for the respondent.
8. The managing director of the petitioner company deposed before this court that they have supplied plastic raw material against three invoices. The raw material was received by the respondent company. The total amount covered by three invoices is Rs. 2,63,550.10. The invoices were marked as Exhs. A-1 to A-3. The respondent did not pay any amount. When the bills were prepared and presented through the bank, the same were returned on the ground that the payment was not forthcoming. Exh. A-7 is the memo issued by the Punjab National Bank. Reminders were issued by Exh. A-11, letter dated 12.3.92 regretting for the abnormal delay in payment of bills on account of severe financial crisis. But, however, assured vide Exh. A-12 that the amount would be paid. Exh. A-13 and A-14 were also to the similar effect. A statutory notice was issued to the respondent company on 15.6.1993, Exh. A-17, and the reply is Exh. A-18, wherein the amount due was confirmed. The admitted liability was never paid to the petitioner company.
9. The managing director of the respondent company in his deposition has stated that the amounts were being remitted to the sister concern of the petitioner company. The respondent company had obtained loans from APSFC and Punjab National Bank as evidenced in Exhs. B-9 and B-20. Exh. B-11 are the sundry creditors as on 13.3.1993 for a sum of Rs. 26,60,483. According to the respondent, the unit is running with considerable orders on hand. The rehabilitation scheme was offered by the APSFC. In this regard, Exhs. B-18 and B-21 were marked.
10. It is not in dispute that the amounts under three invoices, namely, 89, 90 and 95 were routed through the bank and as per Exh. A-7, they were returned by the Punjab National Bank as the payment was not forthcoming. The registered notice was sent on 1.12.1989 wherein the due amount with interest was informed to the respondent and by letter dated 12.3.1992, the respondent company had regretted the delay in payment of bills on account of financial crunch and an assurance was made that the outstanding amount will be cleared before 31.3.1992. However, the respondent continued to be silent without making any payment. Another notice was issued by the petitioner company; the respondent sent a reply on 23.6.1992, Exh. A-12, again regretting the non-payment of the amount and assuring early settlement. The debt amount was swelling and by Exh. A-13 dated 14.9.1992, the respondent company informed the petitioner company that all efforts were made to clear off the outstanding dues and that the petitioner company should cooperate. But, final notice Exh. A-17 was issued under section 433(e) of the Companies Act calling upon the respondent company to arrange the payment of a sum of Rs. 4,65,555; to the said reply, a notice was issued by the respondent company on 9.7.1993, Exh. A-18, accepting the liability of payment of amount under Invoice Nos. 89, 90 and 95 subject to reconciliation. However, they accepted that, apart from other disputed claims, a sum of Rs. 2,63,550.10 was payable. It is also the case of the company that certain cheques were issued and they were dishonoured for which criminal complaints have been filed. The documents filed on behalf of the respondent company are of no assistance inasmuch as it is a categorical admission on the part of the respondent company to the extent of the amount due under Invoice Nos. 89, 90 and 95.
11. This court by orders 29.9.1994 directed the petitioner company to pay the admitted amounts by instalments. However, only one instalment for Rs. 56,250 was paid, but the balance was not paid at all. Thus, even the admitted liability has not been paid by the respondent company. Nothing substantial is forthcoming from the deposition of R.W.-1 or the exhibits marked on behalf of the respondents.
12. Under section 434(1)(a) of the Companies Act, the company is deemed to be unable to pay any debts to creditors to whom the company is indebted in a sum exceeding Rs. 500 and the company neglects to pay the same within the time stipulated after the receipt of notice and if it is proved to the satisfaction of the court, the company is unable to pay its debt, it is liable to be wound up. Section 434 is reproduced below :
'Section 434. Company when deemed unable to pay its debts. - (1) A company shall be deemed to be unable to pay its debts -
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent of legal advise duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.'
The ingredients of section 434 are fully present in the instant case. Though it is sought to be established that the company is in a running condition and it is in a position to pay, but no evidence was produced to sustain the said submission. It is to be seen that the respondent went to the extent of stating that they did not receive even the raw material under the invoices. But the documents would clearly reveal that they have received the same and categorically accepted to pay the same. Exhs. A-11, A-12 and A-13 clearly indicate that the respondent company accepted the debt and sought for accommodation. Even before this court order was passed directing the respondent to pay the admitted instalments, the respondent miserably failed to comply with the order. Though the union objected to the winding up of the company, but when the respondent itself is not able to establish that it is able to pay the debt, the contention of the union becomes only secondary, but, however, if winding up is ordered, the interest of the workmen is protected under the provisions of the Companies Act. Though the decisions were cited by the learned counsel, I feel it is not necessary, when once it is proved on facts that the respondent is unable to pay the debts. After consideration of the evidence and the documents on record, I am of the firm opinion that the respondent company is not able to pay its debt to the petitioner company. It is clearly established that it has been running under financial crisis and that the payment was sought to be made on instalments basis, but even then, no effort was made by the company. After a notice has been issued, the amount has not been paid within the time even though they accepted a portion of the liability.
13. Under these circumstances, I am of the opinion that it is a fit case where the respondent company is liable to be wound up.
14. Accordingly, it is ordered that the respondent company shall be wound up.
15. As it is being submitted that the respondent company is having sufficient orders on hand, the image of the company would be tarnished if the winding up order has been (is ?) published in the local newspapers and its further business will be crippled. In view of this situation and in the interest of the respondent company, I feel it proper to give one more opportunity to the respondent company to clear off the admitted outstanding dues, before the winding up notice is published.
16. Accordingly, I direct the respondent company to make the payment of the admitted amount in Exh. A-18 duly giving credit to the amounts already paid in pursuance of the orders of this court within a period of three months from the date of receipt of the copy of this order.
17. Post the company petition after three months for further orders.